Fifty inmates and 12 policemen were killed when a riot erupted and dozens escaped from an Iraqi prison holding hundreds of people jailed for acts of terrorism, security and police officials said on Saturday.

The deaths occurred on site at the Al-Khalis prison, about 80 km northeast of Baghdad, and during a manhunt for the fugitive convicts overnight, said the officials.

They said 14 policemen were wounded in the latest violence to highlight the multiple security challenges facing Iraq, which is battling an insurgency from hardline militant group Islamic State.

The officials said Al-Khalis held about 300 people convicted of terrorism charges. In Iraq, terrorism cases are mainly linked to Islamist militants, including Islamic State, which controls large parts of Iraq and Syria and which the Iraqi military is fighting to dislodge.

It was not clear if any high-profile prisoners were held at Al-Khalis, the head of Diyala's security committee, Seyyid Sadiq al-Husseini, said.

"The inmates started fighting among themselves, which drew the attention of the police guards who went to break up the fight," said a police source, asking not to be named.

"Then the prisoners attacked them, stripped them of their weapons and started a riot while also managing to capture the armory of the prison."

Authorities declared a curfew in Al-Khalis and raided houses in search of escaped convicts, said another police source.

The Iraqi government is battling Islamic State in the north and west of the country with the help of U.S.-led air strikes, and is also trying to contain widespread sectarian violence.

A car bomb in Baghdad on Saturday killed seven civilians and wounded 14 others, police and medical sources said.-Reuters